The internal physical market remains close to the highs, finding support in the very firm differentials in Santos, the volatility in New York, and the improvement in the dollar. The market is looking for a slowdown after the rally. The fine cup from Cerrado de Minas is currently at BRL 1,160 a bag in the physicals, keeping a good part of the recent gains induced by the withdrawal of sellers. It is good to remember that the description dropped to BRL 960 a bag in early January and then changed hands above BRL 1,200 at the end of February. The fact that it sustains itself near the top is a good sign for sellers. However, this behavior tends to change as the new crop approaches.
The indication for the new crop for delivery and payment in Sep/23 is BRL 1,070 per bag, reflecting lower New York and weaker differentials for new-crop shipments. The good progress of the new crop may affect negatively, especially with the reference from ICE US. In addition, the dollar curve, which sustains a positive spread based on the rising interest rate futures curve, helps alleviate negative losses of coffee prices. Thus, the difference is around BRL 90 a bag in favor of physical coffee.
The expectation is that the spread between coffee maturities on ICE US will become flatter as the arrival of the crop in Brazil approaches – gradually reducing the difference. And both the external benchmark and the port differential end up converging toward the new-crop indications, which would reduce the difference, bringing a more negative bias to prices. It is the effect of the pressure of the seasonal arrival of the crop, which can be even more impactful due to the low commitment of growers. Only 19% of Brazil’s 2023 crop have been negotiated by growers, against 29% in the same period last year.